Propertyscouts Auckland

Disposal of residential land – “bright-line test” for tax extended to 5 years - 17th May 2018

Disposal of residential land – “bright-line test” for tax extended to 5 years Disposal of residential land – “bright-line test” for tax extended to 5 years
Parliament has extended the “bright-line test” for tax on disposal of residential land from 2 to 5 years with this new rule applying from 29 March 2018.
 
The new rule applies to a person who acquires their “first interest” in the land on or after 29 March 2018.  For standard residential land, the date a person acquires their “first interest” will generally be when the person enters into an agreement to purchase the land.
 
What this means is that if you contract to purchase residential land on or after 29 March 2018 and you sell or dispose it (with or without a home on it) within 5 years of registration of the land into your name THEN you may be liable to pay tax on the gain. The exception to this is that if the residential property is your “main home” (which is more specifically defined).
 
For example, if you enter into an agreement to purchase residential land on 29 March 2018 with settlement and registration occurring on 29 May 2018, you could not enter into an agreement to sell or dispose that land until after 29 May 2023, unless you were prepared to face the possibility of paying tax on the gain.
 
The Revenue Minister has said that the extension of the bright-line test will help dampen property speculation and make homes more affordable. We suspect that the change will affect many who would not be considered to be property speculators.

Note: Our Rental Property Management company Propertyscouts Auckland is sharing this article for information purposes.

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